Vilius Kavaliauskas is the founder of Equite, a private multi-asset alternative investment firm based in Lithuania and the UAE.
The indicators are not especially promising. According to EY’s 2025 European Attractiveness Survey, foreign direct investment in Europe has declined to a nine-year low, taking new jobs and projects along with it. More than a third of companies plan to scale back, with some shaken by U.S. tariff uncertainty. And even in Germany, France and the U.K., the greatest magnets for foreign direct investment (FDI) in Europe, there have been double-digit declines.
It’s not hard to see why. In addition to tepid economic growth across the region, energy prices are high and the geopolitical environment is fraught. Taken together, the investment landscape looks bleak.
However, I would argue that rather than shy away from making new investments, now could be exactly the right time to scout opportunities among European startups. It may be time to catch the falling knife.
The Timing
Catch a falling what? You heard me correctly. In the investment world, we’re taught not to catch the metaphorical falling knife, or to invest when a business or an asset is losing its value. The idea is: Why waste your money on a doomed venture? Nobody wants to get their hands cut up by a downward moving blade.
In practice, however, I would say that there are many advantages to doing just that. A trader who buys at the bottom of a downtrend can realize a significant profit as the price recovers, if it’s timed perfectly. The European market at the moment is suffering from lower valuations (registration required), and I’ve noticed an associated reduction in competition. But these can also be favorable conditions for building tech companies.
Low points, and low prices, do open up new opportunities for investors. And investors can also play more meaningful roles in projects. If companies are eager to bring in new capital, they might be willing to compromise or offer favorable conditions for new projects.
Particularly when the companies are focused on new technologies, there seems to be some hope on the horizon. Even in EY’s report, they noted that “R&D-related investment increased, albeit from a relatively low level,” which they said “indicates that investors still consider Europe an attractive location for cutting-edge research across all sectors.”
Sector-Specific Opportunities
I’ve noticed there are some specific sectors, though, where European startups are really poised to shine. Artificial intelligence and generative AI continue to be a dominant force, with strong growth projected, for example. This includes applications across industries, from automating content production and chatbots to optimizing supply chains and improving healthcare. Generative AI and agentic AI are especially on the rise.
Also consider climate tech, or companies focused on green energy and sustainability. With Europe’s strong commitment to net-zero emissions, this sector is booming right now. Climate tech includes solar and wind energy, sustainable construction, electrification of buildings and technologies for tracking and measuring environmental impact.
Other opportunities exist in healthcare and biotechnology, which I’ve noticed are similarly seeing investment, especially in personalized medicine, AI-powered platforms and wearable medical devices for real-time data collection.
Europe’s fintech sector is thriving, too, with investments in digital banking, blockchain technology and regulatory compliance. Banking-as-a-service solutions and digital payment tools are experiencing strong momentum here. And the list goes on and on: cybersecurity, advanced manufacturing and robotics, spatial computing, semiconductors and cloud computing.
I think Europe’s advantage globally has always been that it invests in research. It has many of the world’s oldest universities and a vigorous interest in developing new technologies that reshape everything. Financial challenges or not, that’s unlikely to change.
The Drawbacks
Everything isn’t perfect. I am the first to acknowledge that. In my business, we see it every day. There are talent shortages constraining the development of these sectors. Despite a lot of harmonization, a lot of the regulatory landscape is still fragmented, and it’s complicated for a European startup from, say, Lithuania to sell into another European market like Spain or France.
Tech companies need to navigate 27 different legal frameworks (subscription required) in Europe, manage varying currencies and also localize their services to reach customers who might have distinct tastes. Efforts by the EU to set out common regulations have led to the creation of complex, overlapping laws that at times can even be seen to contradict each other. Startups might continue to operate in a legal vacuum due to these regulatory gray areas.
The Draghi And Letta Reports
There are solutions, though, and they have been spelled out in some recent reports. Last September, Mario Draghi published a report on European competitiveness that offered actionable and coordinated solutions that the European Commission can implement. And last April, Enrico Letta published a 147-page report outlining the future of Europe’s single market. The Commission has also created a competitiveness compass to restore European growth.
One key level for growth that has been singled out is to significantly increase investment in R&D, innovation and strategic sectors. Letta also believes the market could be strengthened through simplifying regulations, leveraging digitalization and even proposing a “fifth freedom” for research, innovation and education to embed these drivers at the core of the single market.
Considerations For Investors
For business leaders and investors evaluating European startup opportunities, success often depends on aligning investments with the individual’s specific risk tolerance, timeline and strategic goals.
It’s important to assess each startup’s ability to navigate multi-jurisdictional regulations, their management team’s cross-border experience and approach to talent acquisition. European markets typically involve longer development cycles and higher compliance costs, which can affect investment timelines. Focus on startups addressing genuine market needs while considering how ongoing regulatory reforms might impact operations.
Most importantly, investors should conduct thorough research and seek diverse perspectives before making decisions. The current environment presents both opportunities and challenges—strategies should reflect a clear understanding of both, tailored to the organization’s capacity for managing European market dynamics.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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